International Credit Card Spends Excluded from Remittance Scheme: Finance Ministry

The Ministry of Finance on Friday amended foreign exchange management rules to exclude spending on international credit cards from the scope of the Liberated Remittances Program (LRS).

The ministry said in a notice that the amendment to the Foreign Exchange Management (Current Account Transactions) Rules of 2000, will be effective retroactively from May 16.

The notification while listing Rule 7 in the FEM (CAT) Rules said that “the use of an international credit card for payment by a person for expenses while such person is on a visit outside India” would not be covered under the LRS.

The amendment reflects the May 16 notification by the department that deleted Rule 7 of the FEM Rules (CAT), thus effectively covering foreign currency spending through international credit cards under the LRS.

Under the Reserve Bank of India’s liberalized remittance scheme, a resident can transfer money abroad up to a maximum of $2.50 thousand USD annually. Any transfer beyond this requires approval from the Reserve Bank of India.

Also, remittances under an LRS are subject to taxation at source (TCS). Bringing international credit card expenses into the LRS would have increased the compliance burden on banks.

Following the May 16 change in FEM (CAT) rules, the general public has raised concerns about its impact.

In a June 28 statement, the ministry said that “to give banks and card networks sufficient time to put in place the required IT-based solutions, the government has decided to postpone the implementation of the May 16, 2023 notice.”

The ministry said that transactions made through international credit cards “will not be counted as LRS and therefore will not be subject to TCS.”

(This story was not edited by the News18 staff and was published from a syndicated news agency feed – PTI)